Thursday, December 12, 2013

PTO/NTIA hearing: first sale

The First Sale Doctrine in the
Digital Age

Moderator: Karyn Temple Claggett, Associate Register of
Copyrights and Director of Policy & International Affairs, United States
Copyright Office

Previous Copyright Office study concluded that first sale
only covers distribution and thus doesn’t apply in digital context where
reproductions are involved. Expansion wouldn’t serve underlying purposes of
doctrine—right to transfer tangible property—and would risk harm. That was
2001; much has changed in legal and business environment. Increased market for
digital goods and increased consumer expectation of what they can do with
lawfully purchased digital goods.

Panelists:

Emery Simon, BSA, The Software Alliance

The issue for us is not first sale, but licensing. Nature of
licensing is changing and marketplace is changing. Copyright is important to us
as foundation of our business, which is licensing.Software is uniquely license based though
other industries are looking at it.Licensing
changes everything. We are in transition from distribution to license to access
through the cloud or elsewhere. Licensing is under pressure—in Europe, Eusoft,
SAP, Adobe—all of which say that a transaction labeled a license was actually a
sale. Those decisions require policing by original licensor, and that’s hard to
do.

Goal of license: meet consumer expectations and control
secondary markets. Two keys to licensing model: (1) clarity on what user gets,
(2) respect for user.We try to account
for customer reaction.

John Ossenmacher, ReDigi

We built a technological mechanism to verify digital
goods/ownership and to allow for what we believe is lawful transfer from buyer
to seller without making copies. We didn’t intend to go to battle.Clarity: in our legal research, there’s never
been a method of delivery specified in first sale.The issue is the balance of power between
different parties, and will that ultimately effect a good result?There can be a lawful exchange of digital
goods between consumers; the tech exists today. (Now I’m thinking about bitcoin
and unique identifiers that prevent double-dipping.)Can provide stronger protection than existed
in the analog world.

Allan Adler, Association of American Publishers

Books are unglamorous. Ten years ago, ebooks were viewed as
a flash in the pan.Hyperbole about how
quickly readers were going to adopt them.Reading community has not yet cast its full bet.AAP is engaged in analog and electronic
versions.We come just at the time at
which people are looking at licensing and deciding it needs to be cut
back.All publishers I represent are
producing their works in electronic format and following the traditional software
model of using licenses. Should it not be allowed to be treated in the
traditional way of other software? Markets move more quickly than regulatory
regimes. Hard to imagine copyright has hindered innovation in this field.
People are now reading books through their telephones. Market continues to
surprise us, and we need to be nimble.

Sherwin Siy, Public Knowledge

Two issues: licensing; can you transfer a digital file.Step back to first sale, not just as a
restriction on distribution right. Its origins are the desire to balance the
rights of a copyright owner with consumer’s control over her tangible physical
property. This includes things like right to publicly display and distribute,
but also includes a lot more than that: the ability to use the thing—read the book, listen to the song.Private display/performance.These aren’t usually an issue for tangible
goods because there’s no §106 right. But with digital goods those do become an
issue.We talk about advantages of
digital media, but there are also restrictions from the nature of digital
technology. Statute hasn’t kept up with the fact that mere use and transfers of
ownership and private performances/displays involve reproductions, and
copyright owners have noticed.

Prof. John Villasenor, University of California, Los Angeles

Challenge is to write language that would allow a digital
first sale doctrine without creating gaping loopholes exploited to the
detriment of rightholders—short term loan problem. Tech is also doubtful: doesn’t
doubt that ReDigi is a good system, but the history of digital security
solutions is that equally smart people find ways to get past them. Not
optimistic that we’d be able to effectively prevent people from making a copy
of what they were supposed to delete.(I’m
sure the DMCA can prevent that, right?)

Q: why is digital first sale or sharing important?

Adler: secondary market in books has always been used
books.Books whose actual condition and
therefore their value has deteriorated over time. That’s missing entirely with
ebooks.(As a frequent buyer of used
books, I resent this blanket description. No one stands over the reseller
making the book deteriorate, no matter how pristine its condition.)An ebook will be identical to a brand new
version.

Ossenmacher: that’s not accurate. First sale is
fundamentally about control. Deterioration isn’t required.There are physical books in excellent
condition for resale.

Siy: Digital copies do degrade, and their perserverance
comes only from copying—the medium itself lasts much less long than paper.
There are games/software we have today only because people were able to hold
onto copies and archive them (either because copyright owners weren’t around
any more or because of a claim of fair use).New markets created by copyright owners aren’t sufficient. Secondary
markets offer new business opportunities for people who are thinking
differently—rental markets for videotapes, textbooks—a vastly underserved
market from the publishers themselves.Also nonpocketbook issues: privacy. If you don’t have a secondary
market, every copy can be known and you know who’s reading what. Also prevents
diffusion of information.

Simon: sure, secondary markets are good. But we regulate
secondary markets in used cars and lots of areas.The notion of having a good doesn’t mean it’s
not without dangers.We license software
with rights and responsibilities; creates privity issues. We worry about
downstream users’ rights and responsibilities—we do updates, services. We
negotiate for all those things. What rights/responsibilities do downstream
users have?It’s not a simple question
of transferring possession.Now that you’ve
done that, now what.

Ossenmacher: privacy comes up a lot. There’s something lost
when we move to digital that is decoupled from first sale. Now my transaction
leaves all sorts of footprints. Anything digital is a privacy challenge.

Q: assuming a secondary market is a good thing, is this
something that requires a legislative solution?You can share some ebooks from B&N, Nook.(In my experience, this is limited to the
point of unusability; the few sharable books are only sharable once and never
again.)

Ossenmacher: not realistic. Note that cars today are very
software dependent. Huge progress in having secondary market support primary
market. Piracy is the issue that we all want to prevent, but if you give people
something of value, won’t people protect that good as something more
valuable?A digital good with zero
economic value because it can’t be transferred isn’t as good as a good with a
secondary market.

Siy: There is room for additional actors—the market is
restrained now. Markets are created by individuals trading, and that doesn’t
happen now. Limits suppliers/sources to a few players, and becomes a poorer
market.

Villasenor: premature to conclude that market won’t evolve—only
short experience with digital access. We’ve seen interesting developments in
ebook loaning, Ultraviolet with the movie industry allowing family
members/household members have shared access to content. It’s early days.(In fairness, I doubt he’s a huge fan of §1201
either, but it certainly wasn’t enacted in ‘wait and see’ mode.)I challenge proponents to come up with good
statutory language—how we can solve the short term loan problem.

Adler: secondary markets do benefit users, but don’t benefit
the author or the publisher or the rightsholder, other than exposure of the
work.(Pity the Ford Motor Co., losing
so much from resales!)Students think
that textbooks are priced too high, but can always sell them back to the
bookstore, and the next person benefits by buying more cheaply, but in those
transactions the author and publisher don’t benefit. We’d like to see new
business models that continue to benefit author and publisher.Hard to see why copyright owners would
entertain the notion of digital first sale as anything but destructive if they
can’t get compensated.

Siy: everyone was talking about markets’ flexibility. Tech for
digital content has been around for a while. Adoption speed has a lot to do
with the legal issues. It’s a bit strange to try to make the law adjust for
existing markets when law is so much more slow. Rely on intelligent
self-interested actors to build viable markets when the law accounts for
various interests.

Pirates are not waiting for the first sale doctrine to
change. They aren’t going to claim “oh I got it used.”

Villasenor: it’s too soon to conclude that licensing won’t
work as content owners respond to demands. Plenty to criticize, but they are
becoming more flexible.

Q: If we acknowledge that digital first sale would only
apply to copies that you own, wouldn’t we also have to expand it to cover
copies you lawfully possess if there’s no such thing as ownership digitally? What
exactly do you own? Music files, software, ebooks?

Simon: we’ve been in the licensing business from the
beginning. You can lease a car or own a car, rent or buy an apartment.
Terminology traps us. We are moving from transfer of physical goods to
licensing access. Can have all sorts of restrictions on leasing apartment, such
as subleasing, that are different from sale. Don’t think of first sale, but
think of reality of marketplace as contractual relationships governed by
licenses, and the licenses should be respected or you destroy viable markets of
the future.(Interesting analogy, though
the landlord/tenant example suggests a huge role for regulators, including
restrictions on transfer restrictions and on termination of transfers.)

Ossenmacher: can’t contract around first sale; contracting around
legal rights is dangerous. There is a place for everything, but when I lease my
apartment I know it’s a lease. When I buy a home I know I’m buying it. Clarity
is indeed important. Society needs clear rules. 50-page incomprehensible EULAs
are not that.

Q: does the average consumer realize she doesn’t “own” her
ebook or music file?

Ossenmacher: our userbase provides much evidence that they
belive they own their files and don’t understand the putative difference
between buying a physical book and buying an ebook.(I note that the buttons always say “buy it
now,” not “license it now.”)

Simon: true, there is this expectation. People behave
differently depending on how they acquired something. But exploiting that
creates more confusion. The marketplace is correcting the confusion: I don’t
think I own any of the movies I get from Netflix.That’s the way a lot of works are
moving.Subscription models generally
will do away with that transitional expectation gap. Fact that it exists doesn’t
mean it should be exploited.

Villasenor: Dangerous to legislatively/judicially upend
contracts. Vernor v. Autodesk: if you have a license, then that’s the end of
the story. Alarming that the ECJ thinks differently.But there could be more clarity.(One theme here and the previous panel is how
differently we are used to treating copyright—so differently that we don’t even
notice how wildly different the rules are from, say, proving some other kind of
injury when a tort has occurred, or regulating transactions in consumers’
interests.)

Adler: contract law has existed for a long time. Fraud, etc.
Education is easily done. Reputations live or die by licenses; if consumers
find them untrustworthy, they’ll find other vendors. Books are highly
competitive. Library ebook lending: main players in popular works all have very
different policies. They are evolving, and fast.

Siy: consumers need a clear idea of what’s happening. That’s
why we talk about the sale/license distinction; it has real legal consequences.
This isn’t a matter of “upending” contracts—the question is the expectations of the contracting parties—which affects whether it is a sale or a
license. Even this crowd doesn’t really read the ToS of Amazon.

The issue of privity is at the heart of the lease/sale
distinction. Bobbs-Merrill was
exactly about preventing control because the terms didn’t run with the
chattels. When I buy a dud at a retailer, I don’t necessarily blame the
manufacturer.

Ossenmacher: the copyright owners don’t want there to be a
secondary market, period. If there is going to be one, licensing provides
control for the copyright owner.Question is whether that is good or bad. That’s the only reason they say
it’s not a sale.

Licensing is fickle. Record industry talks about licensing
two ways: when they speak to artists/bands, they say “it’s a sale” on iTunes
because the royalty rate to artists is much higher for licenses; to us they say
“it’s a license.”

Ossenmacher: ReDigi 2.0: no reproduction involved, access
from the cloud. A transaction—exchange of access keys without copying/moving
files.

Art Brodsky (sp?): Even if a library gets a Harper Collins
book, 26 checkouts; Random House, $85 for a “license” when you or I could download
it for $10. Are the publishers going to let us own anything? Is ownership over?

Adler: not eliminating ability to own—consumers will
ultimately have a choice (unless they are libraries, of course). Examples are
companies trying to meet what they heard from libraries: replicate traditional
library lending in digital environment—attempted to take into account
differences for replacement copies for physical books. You get what you ask for—difficult
for consumers to ask for all the new bells and whistles but still want the
business model not to change from what they liked. (In the absence of
copyright, we’d probably call that supply and demand.) An ebook is a different
kind of product.

Q from audience: ownership is not a matter of
convenience.Very few outlets for
producing digital books; libraries are unlikely to want restrictions on number
of loans.Contrast with what Internet
Archive does with lending to show what consumers actually want.

Corynne McSherry, EFF: Talking about licensing is
required.Can talk about the statute all
we want, but EULAs will take it away if they can.There is empirical research on who reads
EULAs: almost nobody.People don’t
understand them.Eye to purposes of
copyright: promote innovation. Hearing a lot about consumers and expectations,
but not hearing a lot about innovation. This is important because many of these
licenses include restrictions not just on first sale but also fair use etc.
This inhibits the freedom to tinker. People I represent don’t just want access;
they want to mess with them, spurring further innovation. When we talk about
first sale/licensing, we need to talk about how we protect that.

Andrew Schur (sp?), Owners Rights Initiative: Embedded
software in cars, refrigerators. All kinds of goods now software heavy. How do
you deal with reselling these? Does the consumer own the entire bundle?
Consumer doesn’t have a choice when all cars come with software.

Villasenor: he doesn’t think that carmakers are restricting
resale in contracts (though he admits he doesn’t know).

Q: but what if you need updates?

A: you aren’t bound if you haven’t agreed.

Simon: this is fearmongering.Nobody would do that for cars.I have software updates that are automatic
and a map update I paid for. That’s fine, that’s how markets work.(Yeah, uh, Omega v. Costco suggests not.)

Siy: The solution is not to say “don’t worry, no one will
sue”—that’s what they said in Kirtsaeng,
and the Court was not impressed.

Simon: people sue over all kinds of things. But positing
that refrigerators/cars justify secondary markets in software is just silly.

Q: authors get no benefits from secondary markets?Silly. Willingness to pay is affected by
ability to resell—whether that’s a house, a car, or a book (also my ability to
lend to friends, family).

Adler: we didn’t say that there was no benefit. We’re
talking about compensation. There are also wild cards. Kirtsaeng: 40 years of national exhaustion flipped to international
exhaustion, which would have to be under discussion in any change in first
sale. A court recently decided that publishers can’t always determine the price
at which they offer their goods, because sometimes retailers (Amazon) will be
able to tell them what the books will sell for regardless of whether publishers
agree.

Brandon Butler, AU WCL: Librarians scoff at the idea that
digital lasts forever, unlike paper. It’s exactly the opposite. Paper will last
forever if you leave it alone; buying music on different platforms and
computers = disappear faster than you imagine. Don’t think that digital doesn’t
degrade, doesn’t need replacement.

Villasenor: we’re in a transition period. When you have
stuff on personal devices, that degrades. Cloud-based systems can last
effectively forever.200 years, this
recording will be viewable. Challenge in providing access to that, but that’s
not digital first sale.

Adler: we aren’t saying digital will last forever. But
practically when someone buys a physical book used they expect the possibility
of some deterioration. Resale markets for ebooks: people won’t find it
acceptable if ‘this program no longer does the following things/has the
following functions.’ The only ones they’ll buy are ones that work just like
the new one.

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